Akorn: A Prescription For Success

by: Kishore Jethanandani

American investors looking to profit from the Indian economic boom have very few choices; the number of Indian ADRs, ETFs and even mutual funds available locally are limited. Many of the companies that do trade on American exchanges, outside of the technology industry, are close to fully priced. A smarter way to make large gains is to look for American companies collaborating with partners in India. The pharmaceutical industry is a great sector to find bargains. One undervalued stock to look at is Akorn (NYSE:AKN).

Paradigm shifts in the Global Pharmaceutical Industry and the disruptive role that the Indian drug industry is playing in its recreation are throwing up new opportunities for bargain hunting. Increasingly, biopharmaceutical companies are the source of innovation and many of them are small or medium sized companies. The average cost of a new biotech drug is estimated to be about a billion dollars each and much of it is accounted for by clinical trials.

American companies are looking to lower costs by outsourcing research and development, clinical trials and manufacturing to cheaper destinations and India fits the bill. Indian companies, in turn, are making a transition from specialization in cheap generics to drug discovery. While Indian companies have the ability to hire high quality scientists, their size precludes them from making the large investments to not only conduct research but also to market new drugs. They rely on American companies to provide financing for research and development, market new products and to take care of regulatory requirements.

This new prescription for success in the pharmaceutical industry is being played out in Akorn. It has four Indian partners; Cipla to manufacture and supply an oral anti-infective drug, Serum Institute for the development of monoclonal Rabies antibodies, Natco Pharma for orally delivered drugs for cancer and with Strides Arcolab it has a joint venture with as many as 29 new abbreviated drug applications. Serum has also bought stock in Akorn. The joint venture with Strides Arcolab will yield revenues in early 2007.

Currently, Akorn is selling at as low as $5.90 moving up from $3.5 in early October. While it had a negative EPS all through 2006, sales revenue growth is over 50% and it is expected to turn in a positive EPS next year.

AKN 1-yr chart